US Fed's Powell says taper could start in November and finish mid-2022

Reserve decided to keep policy rate between zero and 0.25 per cent

Jerome Powell, chairman of the US Federal Reserve, speaks during a live-streamed news conference following a Federal Open Market Committee meeting in New York. Bloomberg

Federal Reserve Chair Jerome Powell said the US central bank could begin scaling back asset purchases as soon as November and complete the process by mid-2022, after officials revealed a growing inclination to raise interest rates next year.

Mr Powell, explaining the US central bank’s first steps towards withdrawing emergency pandemic support for the economy, told reporters on Wednesday that tapering “could come as soon as the next meeting".

That refers to the policy gathering on November 2-3, though he left the door open to waiting longer if needed and stressed that tapering was not meant to be a direct signal on the timing of rate lift-off.

“The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate lift-off,” he said following the completion of the two-day gathering of the Federal Open Market Committee (FOMC).

His performance was being parsed both by investors and the White House: the central bank chief’s term expires in February and President Joe Biden is expected to decide this autumn whether or not to renominate him to another four years in his post.

In addition to signalling a scale-back in coming bond buying, officials also published updated quarterly projections which showed officials are now evenly split on whether or not it will be appropriate to begin raising the federal funds rate as soon as next year, according to the median estimate of FOMC participants. In June, the median projection indicated no rate increases until 2023.

“We’re seeing a Fed that is getting more hawkish,” Diane Swonk, chief economist at Grant Thornton LLP, said in an interview on Bloomberg Television after the statement was published.

US stocks pared gains, while yields on 10-year Treasuries pushed higher.

The FOMC decided to maintain the target range for its benchmark policy rate at zero to 0.25 per cent and continue purchases of Treasuries and mortgage-backed securities at a pace of $120 billion per month. The vote was unanimous.

Projections for 2024 were also published for the first time, with the median suggesting a federal funds rate of 1.8 per cent by the end of that year. The median for 2023 rose to 1 per cent, from 0.6 per cent in the June projection.

“Participants generally expect a gradual pace of policy firming that would leave the level of the federal funds rate below estimates of its longer-run level through 2024,” Mr Powell said.